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B2B Series Whitepaper

WHAT IS EDI AND


HOW DOES IT WORK?

Author:
Lee Mrkonjic
September 2009

VANTAGE POINT & ASSOCIATES, INC.


14781 MEMORIAL DRIVE
SUITE 2998
HOUSTON, TX 77079

17 AVERDON CRES.
SUITE 201
TORONTO, ON M3A 1P4

TEL: 877.GO.EC.EDI (877.463.2334)


info@ec-edi.biz

www.ec-edi.biz

What is EDI and how does it work?

N OTICES
Vantage Point & Associates provides this whitepaper for information purposes only.
No part of this document may be reproduced, stored in or introduced into a retrieval system,
or transmitted in any form or by any means (electronic, mechanical, photocopying, recording,
or otherwise), or for any purpose, without the expressed written permission of Vantage Point
& Associates.
Vantage Point & Associates may revise this publication from time to time without notice.
EC`EDI Vantage Point and Covering Your E-Bases are trademarks of Vantage Point &
Associates, Inc. All other trademarks are the property of their respective owners.
THIS WHITEPAPER IS PROVIDED AS IS WITHOUT WARRANTY OF ANY KIND,
EITHER EXPRESSED OR IMPLIED, FOR THE WHITEPAPERS QUALITY,
PERFORMANCE, MERCHANTABILITY, OR FITNESS FOR ANY PARTICULAR
PURPOSE. IN NO EVENT SHALL VANTAGE POINT & ASSOCIATES, INC., BE
LIABLE TO THE READER, OR ANY THIRD PARTY ASSOCIATED WITH THE
READER, FOR LOST PROFITS, OR ANY OTHER CONSEQUENTIAL, INCIDENTIAL,
OR PUNITIVE DAMAGES, EVEN IF ADVISED IN ADVANCE OF THE POSSIBILITY
OF SUCH DAMAGES.
Copyright 2009 Vantage Point & Associates, Inc.

What is EDI and how does it work?

TABLE OF CONTENTS
Introduction ................................................................................................................................................1
Purpose of this Whitepaper............................................................................................................1
About Vantage Point & Associates ..............................................................................................1
EDI Chronology..........................................................................................................................................2
What does EDI look like? .......................................................................................................................5
How does EDI Work?...............................................................................................................................7
Sender and Receiver ........................................................................................................................7
Data Transport....................................................................................................................................8
Which Data Transport Method should you use? .............................................................9
How much does Data Transport Cost? ...............................................................................9
Data Translation...............................................................................................................................10
How much does Data Translation cost?...........................................................................12
Data Transformation ......................................................................................................................12
The Mapping Process...............................................................................................................13
Why is there so much mapping going on?......................................................................14
Who provides the Mapping Software? ..............................................................................14
How much does Data Transformation cost?...................................................................14
Data Integration...............................................................................................................................15
How much does Data Integration cost?...........................................................................16
Add-on Techologies for Companies Involved in the Supply Chain ......................................17
How much do Add-on Technologies cost?.......................................................................18
EDI Outsourcing: An Alternative to Data Transport, Data Translation and
Data Transformation..............................................................................................................................19
How much does EDI Outsourcing cost? ...........................................................................20

What is EDI and how does it work?

I NTRODUCTION
Purpose of this Whitepaper
Most technology whitepapers are written by vendors
attempting to persuade the reader to choose their
products. As a result, readers often view these
whitepapers with some level of scepticism, perceiving
them to be too one-sided. Whitepapers written by a
third party tend to be more acceptable because of their
independent viewpoint. As a third party, we have
written this whitepaper in an unbiased manner with the
best interests of the reader in mind.
The purpose of this whitepaper is to educate you on
Electronic Data Interchange (EDI). It has been written
with the novice end user in mind but will also benefit
those who are technically minded. Regardless of your
line of business or job function, we hope to teach you
something valuable that you can apply to your next EDI
project.

Who should read this


whitepaper?
New EDI Users
Business Application
Managers
EDI Co-ordinators
EDI Managers
IT Managers
Software Resellers
Systems Integrators

About Vantage Point & Associates


Vantage Point & Associates is an independent source for
E-commerce and EDI resources, news and vendor
information. We bring sellers of the technology together
with buyers for mutual benefit. Our brand is EC`EDI
Vantage Point and our tag line is Covering Your
E-bases. We provide information to help buyers
educate themselves and make informed decisions while at
the same time offering advertising, promotional and
marketing support to sellers to help get their message out
to buyers.
We pride ourselves on our knowledge of E-commerce
and EDI technology and the industry as a whole. We understand how buyers and sellers of
technology have different motivation and needs and we always have our customers best
interests in mind. Buyers and sellers may engage our expertise for a fee, but we do not accept
a commission from any vendor for recommending their product. Our customers can rely on
Vantage Point & Associates to conduct ourselves in a professional manner with honesty,
integrity and confidentiality.
EC`EDI Vantage Point web site www.ec-edi.biz
Corporate web site www.vantagepoint.ca

Copyright 2009 Vantage Point & Associates, Inc.

What is EDI and how does it work?

EDI C HRONOLOGY
Various forms of electronic file exchange have been in use since the 1960s. In the mid1980s, whats now known as Electronic Data Interchange (EDI) was first introduced. It
formalized the process of exchanging files in a structured, standard format. Over time, EDI
has evolved to include a broader range of technologies under the umbrella of Electronic
Commerce (EC).1
EDI is used to some degree in nearly
every industry. It has become widely
EDI throughout the decades
adopted because it offers companies the
ability to become more efficient and
Pre 1980s
- Exchanging files
electronically only
productive, and thereby more competitive.
realistic for large
EDI gained wide acceptance during the
companies
1990s, backed by strong mandates from
Mid 1980s
- PC technology makes
the retail, manufacturing and
EDI possible for any
transportation industries. Some industries
sized company
have forced EDI compliance on their
Early 1990s - E.D.I. or D.I.E.
trading partners, while others are more
Late 1990s - The Internet changes
casual about adopting the technology.
everything
Todays global economy is putting more
Early 2000s - EDI thrives once again
pressure on everyone to bring their costs
Today
- Still more to come
down, and EDI is one way to reduce those
costs. While EDI is the backbone of EC
technology, it is by no means the only
technology available for increasing productivity.

Pre-1980s Before there was EDI


Prior to the mid-1980s, electronic computer file exchange was realistic only for large
companies with mainframe computers and knowledgeable IT staff. It only made economic
sense to exchange files electronically if you had large trading partners with high volumes of
data. Data-transmission lines were expensive, which made reel-to-reel tapes the most
practical medium. The structure of the files being exchanged was determined by one or both
parties, with no standards as a guide.
For all other companies who didnt have the computing power, expertise, or resources to
exchange files electronically, paper was the only option for conducting business.

The term E-Commerce has widespread meaning. In the Business-to-Business world, its a catch-all term for
doing business electronically in any format, including EDI. In the Business-to-Consumer world, E-Commerce tends
to mean paying for products and services on the Internet using a credit card.

Copyright 2009 Vantage Point & Associates, Inc.

What is EDI and how does it work?

Mid-1980s EDI attracts attention


The first EDI standards emerged in the early 1980s. The advent of the personal computer
(PC) made EDI a possibility for companies of any size. The first EDI translation software
vendors and Value Added Networks began offering services to help large companies bring
their smaller suppliers onto EDI. It seems trivial today, but using a PC, modem, EDI
translation software and an electronic mailbox instead of paper was a drastic step. The startup cost for suppliers easily reached $10,000 or more. Most ended up doing rip and read
EDI, which entailed receiving a document electronically, printing it on paper, and re-keying
it into their business application. To send a document back to a customer, the data would then
be keyed into the EDI translation software. This process turned EDI into a glorified fax
machine, and integrating EDI into a companys business application was the furthest thing
from anyones mind.
Early to mid-1990s E.D.I. or D.I.E.
Various industries, especially retail, continued to drive the adoption of EDI. Retailers were
hungry for more, and their suppliers reluctantly complied. The phrase E.D.I. or D.I.E. was
coined as a warning for companies to adopt EDI technology or face the consequences of
losing customers and falling behind their competitors.
Large companies who had integrated EDI with their business applications from the outset
were growing weary of the rip and read habits of smaller companies. As the number of
transactions made by small companies increased, thoughts of integrating EDI surfaced, and
new vendors offering software and services began to emerge.
Late 1990s The Internet changes everything
EDI was no longer viewed as the only technology for doing business electronically. It had
become a bad word to some, and was perceived as overly complicated and costly for small
companies. The Internet and the dot-com era spawned hundreds of new companies that were
developing revolutionary applications for the Internet, some of which were going to replace
old technologies like EDI with XML.2 These applications were touted as drastically
changing the way companies would do business.
The reality was that the companies who invested heavily in EDI were not about to throw
away their investment and start all over again because of XML. Instead, new options
including XML emerged from the Internet, and made it possible for companies to achieve
100% adoption of E-commerce with their trading partners. Files could be transported via the
Internet, and web forms were an economic alternative available to small companies.
Two significant developments in the late 1990s were: 1) the realization that integrating EDI
into business applications was a necessity, and 2) the development of HIPAA EDI standards.
Large customers in the retail industry started imposing fines on their suppliers who made rekeying or other errors in their EDI data. This affected the profit margins of suppliers, and one
way to reduce errors was to integrate EDI.

2
eXtensible Markup Language (XML) is a flexible way to define document structures and exchange data between
Internet applications.

Copyright 2009 Vantage Point & Associates, Inc.

What is EDI and how does it work?

The Health Insurance Portability and Accountability Act (HIPAA) of 1996 resulted in a set
of EDI transactions being developed for the large healthcare industry. This had a significant
impact on the adoption of EDI in healthcare.
Early 2000s EDI thrives once again
EDI survived the dot-com crash, and showed no signs of going away anytime soon. The
Internet helped take EDI to a new level, much as the PC did in the 1980s. Initiatives such as
web EDI, EDI-INT and integrating EDI made significant gains. The developers of the most
popular business applications also recognized the importance of allowing EDI and other data
formats to be integrated with their products.
A new service that developed during this time was EDI outsourcing. Some companies had
become increasingly frustrated with EDI because they were always playing catch-up with
new developments and demands from their trading partners. Costs were escalating, and as a
result, EDI outsourcing grew in popularity. Companies preferred to pay someone else to deal
with their EDI headaches.
Today Still more to come
The EC/EDI technology developments of the past two decades have made it possible to
conduct business in ways that couldnt have been imagined prior to the 1980s. The Internet
had the greatest impact, making it possible for a company of any size to do business
anywhere in the world. With the number of technology options available, there is no reason
why any company, large or small, cant use EC/EDI technology in their business. In fact, it
has become mandatory if a business is going to survive.

Copyright 2009 Vantage Point & Associates, Inc.

What is EDI and how does it work?

W HAT DOES EDI LOOK LIKE ?


An EDI document is the electronic equivalent of a paper document such as a purchase order
or invoice. Standards govern how EDI documents are structured, and define the rules for
their use. North American companies follow the X.12 standard, while other parts of the
world follow the EDIFACT standard.
The X.12 standard is made up of hundreds of documents called Transaction Sets.
Transaction sets are made up of Data Segments and Data Elements, of which there are
hundreds, and thousands respectively, in the standards dictionary. By putting various
combinations of data segments and data elements together in a structured format, you end up
with a transaction set that has meaning.
Transaction Sets
The following table shows a portion of X.12 transaction sets from the 800 and 900 series.
Set
Number
810
820
830
832
833
834
835
837
840
843
850
855
856
857
858
859
860
862
865
869
870
940
943
944
945
947
997

Description
Invoice
Payment Order/Remittance Advice
Planning Schedule with Release Capability
Price/Sales Catalog
Mortgage Credit Report Order
Benefit Enrollment and Maintenance
Health Care Claim Payment/Advice
Health Care Claim
Request for Quotation
Response to Request for Quotation
Purchase Order
Purchase Order Acknowledgment
Ship Notice/Manifest
Shipment and Billing Notice
Shipment Information
Freight Invoice
Purchase Order Change Request - Buyer Initiated
Shipping Schedule
Purchase Order Change Acknowledgment/Request - Seller
Initiated
Order Status Inquiry
Order Status Report
Warehouse Shipping Order
Warehouse Stock Transfer Shipment Advice
Warehouse Stock Transfer Receipt Advice
Warehouse Shipping Advice
Warehouse Inventory Adjustment Advice
Functional Acknowledgment

Copyright 2009 Vantage Point & Associates, Inc.

What is EDI and how does it work?

Data Segments and Data Elements


This example shows what an 850
purchase order looks like. Each
c Each line is called
a Data Segment
line is called a Data Segment and
begins with the Segment Name. d Each Segment begins
with a Segment Name
For example, N1 represents
name and address line 1
e A number of Data Elements
follow the Segment Name
while PO1 represents
purchase order line 1.
f Data Elements are separated by
a single character such as '*'

g
Following the Segment
character such as '~'
Name is a number of Data Elements.
In the N1 segment, the code BT means its a billto name and address. Data elements are separated
by a single character, usually an asterisk (*). A
segment ends with a single character in this
example a tilde (~).

A Segment ends with a single

Other EDI documents such as an 835 Health Care


Claim will have their own sets of data segments and
data elements. Segments such as the N1 overlap
many transaction sets, but an 835 will have its own
segments and elements that are unique to healthcare.

Example of an 850 Purchase Order


BEG*00*SA*A14578**20070112~
REF*VR*54863~
ITD*01*3*1**15**16~
DTM*002*20070131~
N1*BT*Buy Snacks Inc.*9*3456 Main St.~
N4*Temple*TX*76503~
N1*ST*Buy Snacks Inc.*9*1000 Highway 27 N.~
N3*Regional Distribution Center~
N4*Athens*GA*30603~
PO1**16*CA*12.34* *CB*000111111*UA*002840022222~
PID*F****Crunchy Chips~
PO4*48*7.89*LB~
PO1**13*CA*12.34* *CB*000555555*UA*002840033333~
PID*F****Nacho Chips~
PO4*48*8.9*LB~
PO1**32*CA*12.34* *CB*000666666*UA*002840044444~
PID*F****Potato Chips~
PO4*72*6.78*LB~
PO1**51*CA*12.34* *CB*000874917*UA*002840055555~
PID*F****Corn Chips~
PO4*48*8.9*LB~
PO1**9*CA*12.34* *CB*000874958*UA*002840066666~
PID*F****BBQ Chips~
PO4*48*4.5*LB~
PO1**85*CA*12.34* *CB*000874990*UA*002840077777~
PID*F****Large Bag Chips~
PO4*48*4.56*LB~
PO1**1*CA*12.34* *CB*000875088*UA*002840088888~
PID*F****Small Bag Chips~
PO4*48*4.56*LB~
CTT*7~
SE*32*000000001~

Any number of data segments come together to form a transaction set. In this example there
are 32, as shown in the control counter stored in the very last segment (SE). You will notice
that the PO1, PID and PO4 segments repeat multiple times, just as they would on a paperbased purchase order.
There is flexibility in how an industry or company uses the EDI standards. For example, a
purchase order going from a retailer to its supplier will look very different from a purchase
order going from a mining company to its supplier. The drawback is when one supplier
receives purchase orders from five different customers, and they each structure their 850s
differently. The supplier is burdened with the task of handling the five different 850 layouts.

Copyright 2009 Vantage Point & Associates, Inc.

What is EDI and how does it work?

H OW DOES EDI W ORK ?


There are many components involved in an EC/EDI relationship between two trading
partners. This diagram depicts the flow of data between components, and the remainder of
this whitepaper explains each step.

Sender and Receiver


EDI is a batch process in which transactions are grouped together into one or more files and
all transmitted at the same time. One trading partner is the sender (outbound) and one trading
partner is the receiver (inbound). Both trading partners become senders and receivers
throughout the relationship.
In most situations one trading partner is the driver of the EC/EDI relationship and the other
trading partner is the follower. The driver can be a customer, industry association or
government department, while the follower is a supplier, member of an association, or an
organization that deals with the government.
The driver will publish an implementation guide, companion guide or web site portal that
describes its EDI program, procedures and expectations. Someone who is a supplier or deals
with the government must become compliant by following the instructions set out in the
guide. Members of an industry association are not mandated to use EDI, but they must follow
the guide if they a going to implement EDI.

Copyright 2009 Vantage Point & Associates, Inc.

What is EDI and how does it work?

Data Transport
Data Transport is the process of electronically transferring files to/from your trading
partners.

VAN
mailbox

Protocols

Sender

anchor
Dial-up and
drop off

Protocols

Traditionally a Value Added Network


(VAN) is used as the go-between for trading
partners. The senders computer dials-up and
drops off a file to the VAN, which in turn
stores the file in an electronic mailbox. When
the receivers computer is ready, it dials-up
the VAN to pick up the files from the
mailbox. Protocols such as Async and Bisync
are used to securely transmit files to/from the VAN.

Dial-up and
pick up
Receiver

Data Transport through a VAN

Nowadays the Internet is used to make the


connection to the VAN. It is also used to
connect Point-to-Point to a trading partner,
thus bypassing the VAN entirely. The
computer dial-up step isnt necessary if the
Internet connection is always active, although
some small businesses still use a dial-up
Internet connection.
These are the most common protocols used to
transmit files to/from a VAN or Point-to-Point:
File Transfer Protocol (FTP) is initiated by either trading partner to transfer files to/from
the VANs computer, or Point-to-Point on the trading partners computer. It usually requires
a log-in to gain access, but it is not fully secure because files are sent in clear text and could
be intercepted and deciphered. File Transfer Protocol Secure (FTP/S) solves the problem
by adding a level of security to thwart eavesdropping.
Hyper Text Transfer Protocol (HTTP) is initiated by one trading partner to request files
to be transferred from the VANs computer, or Point-to-Point from the trading partners
computer. The receivers computer must acknowledge the request before sending the file.
Hyper Text Transfer Protocol Secure (HTTP/S) is the same as HTTP, with an added level
of security to encrypt files.
EDI-INT is a set of standards for transferring EDI files through the Internet more securely
than e-mail, FTP/S or HTTP/S. Applicability Statement 1 (AS1) defines the standards for
using e-mail to transfer files, Applicability Statement 2 (AS2) defines the standards for
using HTTP to transfer files and Applicability Statement 3 (AS3) defines the standards for
using FTP to transfer files. While FTP/S and HTTP/S offer security, EDI-INT adds another
layer of security involving public and private keys.

Copyright 2009 Vantage Point & Associates, Inc.

What is EDI and how does it work?

Which Data Transport Method should you use?


There are various factors surrounding cost, security and compliancy that will determine
which Data Transport method you should use. If you are the follower in a trading
relationship, the Data Transport method will most often be determined by the driver.
Followers have little say in the matter, and will have to bear any added costs to comply.
If your trading partner is indifferent to the Data Transport method, choose a protocol that
offers an acceptable level security for your data. FTP and HTTP would not be considered
secure, FTP/S and HTTP/S are considered secure, and EDI-INT is considered very secure.
Taking into account all your trading partners, it is likely that you will end up using a mix of
Data Transport methods.

How much does Data Transport Cost?


Value Added Network
Many of the VANs have different pricing
1 KC=1,000 characters of data
structures which make it difficult to compare
prices when shopping around. Generally, you can
expect to pay a setup fee, monthly subscription fee and transaction fee. The setup fee can be
hundreds of dollars; the monthly subscription fee ranges from $25 to $100; and the
transaction fee will vary depending on volume in kilo-characters (KC). A kilo-character is
1,000 characters of data transmitted at a cost ranging from 5 to 25 or more per KC. Some
VANs charge by the number of documents transmitted instead of kilo-characters. Pricing
from VANs is very competitive, and some will offer a low monthly flat rate for guaranteed
volume under a multi-year contract.
The VAN will determine the protocol to use, and will provide the parameters to login to your
mailbox on their network. Most VANs interconnect with each other, meaning you only
subscribe to one VAN. However, it is common to subscribe to more than one VAN because
your trading partners will not allow the exchange of files using an interconnection.
Point-to-Point
Point-to-Point connections eliminate the need for a VAN and its associated costs.3 If security
is not an issue, then the FTP or HTTP protocol can be used. FTP/S or HTTP/S should be
used to keep the contents of your files secure. Using FTP/S requires software that can be
purchased for a few hundred dollars or less. Using HTTP/S does not require additional
software, but you must know how to program in the HTTP language.

Unless all your trading partners are willing to go Point-to-Point, you will still need a VAN.

Copyright 2009 Vantage Point & Associates, Inc.

What is EDI and how does it work?

EDI-INT
The EDI-INT protocols (AS1, AS2, and AS3) are used by companies seeking the most secure
Point-to-Point connection to their trading partners. While there are no transaction fees
associated with EDI-INT, you will have to purchase software that can cost $500 - $5,000 or
more for a standard PC installation. The cost is usually scaled to the number of trading
partners, with some lite versions being available at a lower cost if you use EDI-INT with
only one or two trading partners.

Data Translation
If you look at an EDI transaction in its raw format, most of the data is meaningless until it is
passed through an EDI translator. Data Translation is the process of interpreting EDI data to
ensure it conforms to the EDI standards (X.12 or EDIFACT), as well as performing checks
and balances before the data reaches the intended business application. An EDI translator
performs the following functions:
Compliance Checking
Each EDI transaction is checked against the
PO1**51*CA*12.34* *CB*000874917*UA*002840055555~
EDI standards dictionary to ensure it
Every segment must be formatted properly
conforms to formatting rules. The term for
this is called compliance checking. If an
EDI transaction does not comply with the
rules, the translation fails and the transaction
should not reach the business application. The following are some examples that would cause
a transaction to fail EDI translation:
a)
b)
c)
d)

A line item on a purchase order has no number in the Qty Ordered field
The date on an invoice is formatted as DDMMYYYY when it should be YYYYMMDD
A shipping manifest is missing the Total Weight field
A trading partners business application underwent an upgrade and caused a field to be
formatted incorrectly

Control Number Checking


The purpose of control number checking is to track the transmission of EDI documents, to
ensure duplicates are not sent or received. Sequential numbers are assigned to each
transmission (ISA segment), each group of documents (GS Segment) and each transaction set
(ST segment). When a transmission is sent or received and a control number is duplicated or
out of sequence, it indicates a problem that requires immediate action. This safeguard ensures
that missing transmissions are noticed, and duplicate transactions dont reach the business
application.

Copyright 2009 Vantage Point & Associates, Inc.

10

What is EDI and how does it work?

Trading Partner Management


It would be difficult to manage EDI trading relationships without a trading partner
management function. This function keeps track of the attributes that differ from one trading
partner to the next. The following are some examples:

Contact information for the business person responsible for EDI.

Contact information for the technical person responsible for EDI.

Data transport method used, and account information to connect to a VAN or


Point-to-Point.

The severity level (critical or warning) if control numbers are out of sequence.

E-mail address of the person to alert when errors are found.

EDI standards version number being used.

Tracking and Auditing


Problems will arise no matter which form of electronic commerce is used. With EDI, trading
partners need the ability to track the whereabouts of an EDI transaction that did not make it
to the business application. EDI translation software provides various logs and reports to
trace a transaction throughout the process.
An inherent audit feature in EDI translation software is the functional acknowledgement,
which is known as the 997 transaction. Every EDI transaction that is sent by a trading partner
requires an acknowledgment of receipt from the other trading partner via the 997. A positive
997 means the original transaction was received and passed EDI translation. A negative 997
means the original transaction failed translation. Not receiving a 997 means there was a
transmission problem between the two trading partners.
Document Repository
A document repository is a place to store all incoming and outgoing EDI and non-EDI
transactions. Transactions are stored in a database in their original form, and all activity
against each transaction is logged. This makes is possible to trace a transaction from all
points between Data Transport and Data Integration into the business application. When it
becomes necessary to re-send a transaction due to operational problems, the original can be
retrieved from the repository.
Another function of the document repository is to facilitate an EDI document turnaround.
Many business applications do not have a home in their database for fields that arrive on an
incoming EDI document. The trading partner expects the data in those fields to later be sent
back in another EDI document. An example is a purchase order (850) that is turned around
into a purchase order acknowledgement (855). Since the business application does not store
some of the EDI data, the original 850 document can be retrieved from the repository to
select data to place into the 855.

Copyright 2009 Vantage Point & Associates, Inc.

11

What is EDI and how does it work?

How much does Data Translation cost?


The cost for EDI translation software will vary depending on your computing platform. A
low-end, PC-based translator that can handle a few trading partners will cost $1,500 - $3,500.
A mid-range PC or server-based translator costs $4,500 to $15,000. An enterprise system that
includes Data Transport, Data Transformation and Data Integration modules in one product
will cost $25,000 to $150,000 or more.
EDI translation software vendors may charge extra for trading partner kits, the cost of which
ranges from $250 to $1,000. (See Senders Layout #1 on page 13 for more information on
kits.)
Annual software maintenance is 15% - 20% for support and upgrades. EDI education and
software training is extra if you require it. The cost can be an hourly rate (up to $150 per
hour) or a flat rate per workshop, per student.
For more costs associated with Data Translation, see the section at the end of Data
Transformation (page 14) and the section at the end of Data Integration (page 16).

Data Transformation
Data Translation and Data Transformation sound similar but are not the same thing. As
explained earlier, Data Translation is the process of interpreting EDI data to ensure it
conforms to the EDI standards. Data Transformation is the process of taking data from an
inbound record layout and moving it to an outbound record layout. Another term for this is
called mapping. Any data format (EDI, XML, TXT, etc.) can be transformed but only EDI
data is mapped. The layout of the inbound/outbound record for mapping is determined by the
application that created or uses the data. This diagram illustrates how mapping works:

The inbound layout appears on the left-hand side, and the outbound layout on the right-hand
side. The layouts on either side can be in any format. In this example, an EDI 850 is being
mapped to a sales order in the accounting system. A map definition sits in the middle and
defines where to move each piece of data, left to right. If necessary, the map can alter the
data before moving it. For example, the Order Date was changed from YYYYMMDD format to
MMDDYYYY when creating the sales order.

Copyright 2009 Vantage Point & Associates, Inc.

12

What is EDI and how does it work?

The Mapping Process


Receiving a transaction in EDI or any other format is of little use unless you can map it to
something else. Even a rip and read scenario requires a map to define where to put the data
on a piece of paper. Mapping is an essential component of integrating EDI into a business
application. One anomaly in the process is that mapping must take place more than once
before a transaction is successfully integrated.
This diagram illustrates the flow of an EDI transaction once it has been received by a trading
partner. A transaction must pass through one or two mapping steps before it reaches the
business application.

Senders Layout #1
EDI translation software comes with a full set of EDI standards stored in a dictionary that
contains hundreds of transaction sets, hundreds of data segments and thousands of data
elements. A trading partner will only use a small percentage of the dictionary in their
adaptation of the standards. Therefore, most EDI translation software vendors will offer kits
that match the trading partners use of the standards. There is one kit for every trading
relationship that contains several transaction sets.
Mapping Pass #1 and Layout #2
Each EDI translation software product in the marketplace will have its own way of doing
things. In order to get a transaction into your business application, you first have to get it out
of the EDI translation softwares database. The simplest method is to export a transaction in
EDI format (layout #2) exactly as it looked when in arrived in layout #1. Some products will
only allow exporting to a layout that is predetermined by the EDI translation software. In
other software, you can map a transaction to a layout of your choice, which might as well be
the integration softwares format (layout #3).

Copyright 2009 Vantage Point & Associates, Inc.

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What is EDI and how does it work?

Mapping Pass #2 and Layout #3


Each integration software product in the marketplace will have its own way of doing things,
as well. To ultimately get a transaction into your business application, it has to pass through
the integration software. If the integration software requires its own layout (#2), the
transaction can be mapped during pass #1, or it will have to be mapped again in pass #2.
Regardless of where it is mapped, the end result is the creation of layout #3 that your
business application expects.

Why is there so much mapping going on?


The reason there is so much mapping going on is that EDI translation, mapping and
integration software could all be purchased from different software vendors. This creates
confusion, as there are hundreds possibly thousandsof combinations of products that
could be used together. This doesnt even take into account the Data Transport software
discussed earlieror software add-ons discussed later that can add hundreds more
combinations. The only realistic way for all these products to talk to each other is through
mapping.

Who provides the Mapping Software?


Mapping software can be purchased from: 1) the EDI translation software vendor;
2) the integration software vendor; 3) an independent mapping software vendor. It is
common for EDI translation and integration software vendors to sell mapping software, but it
is uncommon to have EDI translation software, integration software and mapping software
all rolled into one productthe exception being large enterprise applications that combine
Data Translation, Data Transformation and Data Integration into one product that is
expensive to purchase.

How much does Data Transformation cost?


Mapping software has similar cost patterns to EDI translation software reviewed on page 12,
including the initial purchase, annual maintenance, education and training.
An added cost involving Data Translation and Data Transformation is professional services.
Unless you have an IT staff that is trained and prepared to use the software, you will incur an
expense for someone to do all the mapping. At a cost of up to $250 per hour, the total outlay
for professional services could equal or surpass the one-time purchase of the software. Every
time you add a new trading partner or a new transaction set for an existing trading partner,
there is a cost.
If you have purchased low-end EDI translation software that works with one or two trading
partners, it is possible that there will be no additional costs for professional services.

Copyright 2009 Vantage Point & Associates, Inc.

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What is EDI and how does it work?

Data Integration 4
Few, if any, business applications will accept an
EDI transaction in its raw format for processing.
This means there has to be integration software
in the middle that will map the EDI transaction
into the format that the business application will
accept. (Review the section The Mapping
Process on page 13.) This diagram illustrates
the integration process using a doorway
analogy.
The business application will provide the
doorway to allow a transaction to enter in
one of two ways: 1) the integration software
will walk through the door and interact with the application directly; 2) the integration
software will hand off the transaction at the door, and the business application will take
over. Both methods are acceptable, but the business application ultimately decides which one
must be used.
Additional Considerations
Inbound and outbound processing. Integration is a two-way process. While posting an EDI
transaction, such as an order, into an accounting / ERP system (inbound) is most common,
there is a necessity to retrieve a transaction such as an invoice out of the application
(outbound), as well.
Any data format will work. While EDI is the primary format discussed here, the integration
principles apply to other data formats such as XML and TXT, too. If your company has a
web site that accepts orders from customers, the same principles and technology can be used
to integrate your web site with the accounting / ERP software.
Using EDI Outsourcing. Regardless of whether you have an EDI operation
in-house, or use a third party for EDI outsourcing, the integration process is the same.
Do-It-Yourself versus buying integration software. If you have IT personnel who are
proficient in EDI and the business application, they can do the integration without purchasing
integration software. For most companies, it is more economical to purchase software than to
do it yourself.
Home-grown business application. If you have a business application that was developed by
your IT staff, the integration process is the same. The only difference is that you, instead of
the software publisher, determine how EDI will be integrated into your system.

To learn more about integrating EDI, visit www.ec-edi.biz to download a free copy of the the B2B Series
Whitepaper: Integrating EDI into Accounting and ERP Systems published by Vantage Point & Associates.

Copyright 2009 Vantage Point & Associates, Inc.

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What is EDI and how does it work?

How much does Data Integration cost?


Integration software has similar cost patterns to the Data Transformation software reviewed
on page 14, including the initial purchase, annual maintenance, education and training.
The initial purchase price will vary, and is often relative to the complexity and cost of your
business application. Integration software for use with small business applications can cost
less than $1,000, but ironically costs more that the business application itself. Integration
software for the mid-range business applications costs $2,500 to $10,000 or more.
There will be a cost for professional services to do the integration. The costs might be
included in the Data Translation or Data Transformation tasks rather than here, but not in
more than one place.

Copyright 2009 Vantage Point & Associates, Inc.

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What is EDI and how does it work?

A DD - ON T ECHOLOGIES FOR C OMPANIES


I NVOLVED IN THE S UPPLY C HAIN
If your company is not a manufacturer or distributor involved in the supply chain of your
industry, you can ignore this section. Otherwise, you should read about these add-on
EC/EDI technologies that may become necessary to purchase if mandated by your trading
partners.
Advanced Ship Notice
The most complicated EDI transaction used in the supply chain is the 856Advanced Ship
Notice (ASN). Companies use the ASN to manage just-in-time deliveries from their
suppliers. An ASN is sent by the supplier to the customer, and tells them exactly what to
expect in the shipment when it arrives. Creation of the ASN occurs on the warehouse floor
where the goods were packed, which is a different location from where the EDI operations
take place. Using a third-party logistics company for warehousing and shipping makes the
distance between the two locations even greater.
EDI translation, mapping and integration software vendors handle the complexity of the ASN
with software that is an add-on to their base product. This module is accessed in the
warehouse where the actual packing and shipping takes place. The base software located in
the EDI operations department takes the data, builds the ASN and sends it to the trading
partner.
Bar Code Label Printing and Radio Frequency Identification (RFID)
Many customers expect their suppliers to label packages, cartons and skids according to the
customers specifications when shipping orders. Since much of the data originates from an
order placed through EDI, it makes sense to have the EDI translation, mapping or integration
software facilitate the creation of the labels.
EDI translation, mapping and integration software vendors facilitate the printing of labels
within their base product, or through an add-on. Their software provides the data that goes on
the label, but it does require another piece of software from a third party to actually format
and print the labels. A label printer is necessary, although some products allow the labels to
be printed on 8 x 11 sheets using a laser printer.
RFID is a technology that allows miniature transmitters to be embedded in shipping labels.
Its very similar to a bar code label but doesnt require scanning by hand. When a shipment
arrives at the customers warehouse, scanners read the labels on packages and skids as they
pass through the doors. The scanned data is then uploaded to the host computer for
processing. Large skids with multiple packages can be scanned in one pass, compared to
scanning one package at a time by hand.

Copyright 2009 Vantage Point & Associates, Inc.

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What is EDI and how does it work?

Global Data Synchronization


One of the inefficiencies in global trade is that a single product could have hundreds of
different numbers to identify it. A company in North America could identify a product as
number 123, while another company in Europe could identify the same product as 456. Both
companies purchase the product from a supplier in Asia who identifies it as 789. Global Data
Synchronization (GDS) is a process that companies anywhere in the world can use to identify
a product consistently and share that data throughout the supply chain.
GDS is accomplished by assigning a Global Trade Identification Number (GTIN) to every
product manufactured, and making it accessible through the Global Data Synchronization
Network (GDSN). The GDSN allows companies to quickly and efficiently exchange product
data that is accurate, up-to-date and compliant with universally-supported EAN.UCC
standards.

How much do Add-on Technologies cost?


Depending on the vendor, the cost for ASN software might be included with the Data
Translation, Data Transformation or Data Integration software. For a PC-based installation,
the add-on will range from a few hundred dollars to several thousand dollars.
For bar code label printing, you will have to purchase software at a cost of up to $1,500, plus
a label printer for $1,500 to $3,000. The Data Translation, Data Transformation or Data
Integration software vendor should be able to recommend a vendor for the label printing
software and printer.
A pricing model for GDS is too varied to present in this whitepaper at this time.

Copyright 2009 Vantage Point & Associates, Inc.

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What is EDI and how does it work?

EDI O UTSOURCING : A N A LTERNATIVE TO D ATA T RANSPORT,


D ATA T RANSLATION AND D ATA T RANSFORMATION
An EC/EDI relationship with your trading partners can be overwhelming and complex. With
global trade and technology changing so rapidly, it can be difficult to keep up, and will likely
become more complex over time, not less. The alternative for many companies is to
outsource their EDI operation.
EDI outsourcing is growing in popularity. Outsourcing service providers are in direct
competition with vendors who offer software and services for Data Transport, Data
Translation and Data Transformation. Both approaches are viable, but it is beyond the scope
of this whitepaper to delve into the pros and cons of one method versus the other5.
This diagram shows how the flow of data changes through EDI outsourcing:
EC/EDI Relationship through Outsourcing
Outbound / Inbound

Sender

Data
Transport

Data
Translation

Data
Transformation

Outsource

Data
Transport

Data
Integration

Business
Applications

Accounting

Value
Added
Network

API

EDI
Point
-toPoint

Receiver

Receiver

Point
-toPoint

Any
Format

ERP

Languages
ODBC

Warehousing

I-File
I/E

CRM
Others

Inbound / Outbound

Sender

The service provider assumes responsibility for managing the Data Transport, Data
Translation and Data Transformation components of the relationship with your trading
partners. You only have to maintain one Point-to-Point connection with the server provider.
You dont have to understand how these components work, or worry about day-to-day
operations. You must still operate the Data Integration component alongside your business
application, however.

5
To learn more about EDI outsourcing, visit www.ec-edi.biz to download a free copy of the B2B Series Whitepaper:
Outsourcing Your EDI Operation published by Vantage Point & Associates.

Copyright 2009 Vantage Point & Associates, Inc.

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What is EDI and how does it work?

How does EDI Outsourcing Work?


In an EDI outsourcing scenario, the service provider acts as your IT department and EDI
operations department all in one. You interact with the service provider, and they deal with
your trading partners at the operational level. You are still responsible for managing the
business relationship with your trading partners.
Integrating EDI with your business application works in the same manner as a nonoutsourced solution. Files are exchanged between you and the service provider using a Pointto-Point connection (Data Transport), and you integrate the data with your application.
Many EC/EDI vendors in North America offer web EDI, which is a method of EDI
outsourcing. It is ideal for companies who have low-to-medium EDI activity and no
resources to handle the complexities internally. The service provider acts as your IT
department and the EDI operations are somewhat shared. They provide you with access to
their system through a web browser, to process EDI transactions in real time. After your
activities are completed, the service provider will translate and transport files to/from your
trading partners.
With web EDI, integrating EDI with your business application works in the same manner as
a non-web EDI solution. Files are exchanged between you and the service provider using a
Point-to-Point connection (Data Transport), and you integrate the data with your application.

How much does EDI Outsourcing cost?


There are many EC/EDI vendors who offer outsourcing services in North America. Their
pricing models are too varied to discuss in this whitepaper. You can assume that the overall
costs will be less than what it would cost to manage an in-house EDI operation. These are
some considerations when evaluating the cost for EDI outsourcing:
1. You will not have to purchase any Data Transport or Data Translation software.
2. You will have to purchase Data Integration software and possibly Data Transformation
software.
3. The costs to integrate EDI with your business application will be the same whether you
outsource your EDI operation or not.
4. There is still a cost associated for someone in your organization to manage the business
relationship with your trading partners and the relationship with your service provider.
5. If you require bar coded labels to be printed, you still have to purchase software at a cost
of up to $1,500, plus a label printer for $1,500 to $3,000.

Copyright 2009 Vantage Point & Associates, Inc.

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What is EDI and how does it work?

6. The fee structure from the service provider will include a combination of the following:
One-time setup fee
Monthly management fee
Transaction fees
VAN charges
New trading partner or transaction setup fees
Mapping fees (for integration)
With the web EDI outsourcing method, the pricing model is similar among vendors, and
these are some considerations when evaluating the cost:
1. Points 1 to 5 above also apply to web EDI
2. The fee structure from the service provider will include a combination of the following:
One time setup fee flat rate or up to $750 per trading partner
Subscription fee $25 to $75 per month
Transaction fees $1 to $3 per transaction, based on volume
VAN charges If your trading partner still uses a VAN, the service provider will
connect to the VAN on your behalf. They will pass the cost on to the customer at a
rate of 5 to 25 or more per KC. Some service providers will bundle the VAN
charges into their transaction fees.
New trading partner or transaction setup fees variable $
Mapping fees for integration up to $250 per hour

Copyright 2009 Vantage Point & Associates, Inc.

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